5 Red Flags in a General Contractor's Subcontract Agreement

Why subcontract agreements need a close read

A subcontract agreement looks like a routine form until something goes wrong. Then the fine print decides who gets paid, who pays for mistakes, and who controls the work. Before you sign, watch for these five common red flags.

1. Pay-if-paid vs. pay-when-paid clauses

Payment clauses in subcontracts often come in two flavors, and one is much riskier than the other.

Pay-when-paid means the general contractor only has to pay you after it gets paid by the owner. The risk stays with the general contractor if the owner never pays, but your payment can still be delayed.

Pay-if-paid shifts that risk to you. If the owner does not pay the general contractor, the general contractor may not owe you anything at all, even though you completed the work.

Look for language like "payment is conditioned on owner payment" or "contractor shall have no obligation to pay subcontractor unless and until contractor receives payment from owner." If you see that, ask for it to be changed to pay-when-paid or removed entirely.

2. Retainage terms that drag on too long

Retainage is the portion of your invoice the general contractor holds back until the project is finished. A typical amount is 5% or 10%. The problem is not the percentage — it is how long it stays held back and what has to happen before it is released.

Watch for clauses that tie your retainage to the entire project's completion, final inspection, or owner acceptance. You may finish your portion early but still wait months or years for the last trade to wrap up. Ask for a shorter retainage release tied to your own substantial completion.

3. Vague or one-sided change order clauses

Change orders are a normal part of construction. What matters is how they are approved, priced, and paid.

Red-flag language lets the general contractor direct extra work without a written change order, or requires you to perform disputed work first and argue about price later. Also watch for clauses that say you waive any claim not submitted within a very short window, like 24 or 48 hours.

Before signing, make sure the agreement requires written authorization for extra work and describes how changes will be priced. If the general contractor can issue oral directives that bind you, get that removed.

4. Indemnification language that puts everything on you

Indemnification means agreeing to cover someone else's losses. A fair subcontract asks you to indemnify the general contractor for damage or injury caused by your own work or negligence. A one-sided clause may ask you to indemnify the general contractor for almost anything, including losses caused by the general contractor, the owner, or other trades.

Look for broad phrases like "subcontractor shall indemnify contractor for any and all claims arising out of or in connection with the work, regardless of fault." That is much broader than fault-based indemnity. Ask for the clause to be limited to claims caused by your negligence, breach of contract, or willful misconduct.

5. Scope-of-work language that is unclear or expandable

The scope of work should describe exactly what you are doing, where, and for what price. Vague descriptions like "perform all work shown on plans and specifications" or "and any other work required to complete the project" can be used to add responsibilities you never priced.

Also watch for clauses that say your bid covers work "implied" by the drawings or "reasonably inferable" from the specifications. Those words can stretch your fixed price in ways you did not expect. Make sure the scope references specific plans, drawings, and exhibits, and that anything outside those documents requires a change order.

What to do before you sign

• Read the payment clause carefully and push back on pay-if-paid language.
• Ask when retainage is released and whether it depends on your work or the whole job.
• Insist on written change orders with agreed pricing before extra work starts.
• Limit indemnification to claims caused by your own negligence or breach.
• Make the scope of work specific and tie it to named plans and exhibits.

The bottom line

Subcontract agreements are negotiable, even when they look like standard forms. The clauses above are five of the most common places where subcontractors take on more risk than they realize. Reading them before you sign can protect your payment, your schedule, and your business.